Help from Realtors: what’s my friend’s house worth now?

[Bugs]

sdr,

With respect, I said I’d look at them; I distinctly noted that those would not be the only ones I’d look at – and they weren’t. I looked at the larger (and smaller) homes in the area as well as the newer homes. Those three are the ones that are the most proximate, and on paper, the most similar sales.

The “6-month” rule is indeed a relevant one to a lender, but that doesn’t mean that the (one) 6.5-month old dated sale is irrelevant, which is why I also looked at the more recent but less proximate sales and also why I looked back in time to compare what these outside areas were doing in relation to this property’s neighborhood at the beginning of this year. I didn’t make my “5% remark” without basis.

Yes, an appraisal for mortgage underwriting does rely primarily on closed sales, which by definition occurred in the past. But even you would have to agree that the actives are indicative of what’s going on only to the extent that their upper ranges will exceed what these homes will close for if they close at all. Remember, before those sales close many of them will have to get by the appraiser and the lender’s review, neither of which are as gauranteed in 2007 as in 2006.

FYI, the recent performance of the closed sales includes closing prices that are predominantly at the bottom of their respective ranges and in many cases below those ranges. I like pending sales a lot too, but I know better than to project closing prices at the upper ends of those ranges, because over the last 10 months the data in this area doesn’t support that.

Your job as a realty agent is to be an advocate for your client, and listing prices are a position to start from; not a freestanding indication of value. I would in no way be disappointed if you established a listing price well in excess of what I’d appraise a property for. In fact, I’d expect you to do it, ’cause I recognize that’s your job and I know better than to use my requirements as an appraiser to judge your actions as a realty agent. Apples and oranges.

Who knows, maybe with more research and in seeing these properties in person I’d change my mind. Come to think of it, there’s no ruling out a lower opinion of value – that happens a lot more often as the higher opinion.

FTR, I did qualify my remarks quite a bit and I did express my opinions as opinions, not fact. The thing is, if I were appraising this property and a buyer and seller had decided on $900k, the burden would be on the agents involved to make their case for that value because the trends demonstrated by the closed sales don’t appear to support that value, let alone make it obvious.

So go ahead – make your case.

[Bugs]

sdr,

With respect, I said I’d look at them; I distinctly noted that those would not be the only ones I’d look at – and they weren’t. I looked at the larger (and smaller) homes in the area as well as the newer homes. Those three are the ones that are the most proximate, and on paper, the most similar sales.

The “6-month” rule is indeed a relevant one to a lender, but that doesn’t mean that the (one) 6.5-month old dated sale is irrelevant, which is why I also looked at the more recent but less proximate sales and also why I looked back in time to compare what these outside areas were doing in relation to this property’s neighborhood at the beginning of this year. I didn’t make my “5% remark” without basis.

Yes, an appraisal for mortgage underwriting does rely primarily on closed sales, which by definition occurred in the past. But even you would have to agree that the actives are indicative of what’s going on only to the extent that their upper ranges will exceed what these homes will close for if they close at all. Remember, before those sales close many of them will have to get by the appraiser and the lender’s review, neither of which are as gauranteed in 2007 as in 2006.

FYI, the recent performance of the closed sales includes closing prices that are predominantly at the bottom of their respective ranges and in many cases below those ranges. I like pending sales a lot too, but I know better than to project closing prices at the upper ends of those ranges, because over the last 10 months the data in this area doesn’t support that.

Your job as a realty agent is to be an advocate for your client, and listing prices are a position to start from; not a freestanding indication of value. I would in no way be disappointed if you established a listing price well in excess of what I’d appraise a property for. In fact, I’d expect you to do it, ’cause I recognize that’s your job and I know better than to use my requirements as an appraiser to judge your actions as a realty agent. Apples and oranges.

Who knows, maybe with more research and in seeing these properties in person I’d change my mind. Come to think of it, there’s no ruling out a lower opinion of value – that happens a lot more often as the higher opinion.

FTR, I did qualify my remarks quite a bit and I did express my opinions as opinions, not fact. The thing is, if I were appraising this property and a buyer and seller had decided on $900k, the burden would be on the agents involved to make their case for that value because the trends demonstrated by the closed sales don’t appear to support that value, let alone make it obvious.

So go ahead – make your case.

[Bugs]

BTW, since you’re making a big deal about the use of older sales (necessitated due to the complete lack of current activity in that neighborhood), let me point something out:

I listed those sales in chronological order, the oldest sale being first. Usually I do it in reverse order on an appraisal report so as to demonstrate the trend in values, if there is one.

In looking at these three sales and when considering there has been no activity in this size range in the last 3 months, are these sales indicating to you that the market trends are still increasing in this area?

[Bugs]

BTW, since you’re making a big deal about the use of older sales (necessitated due to the complete lack of current activity in that neighborhood), let me point something out:

I listed those sales in chronological order, the oldest sale being first. Usually I do it in reverse order on an appraisal report so as to demonstrate the trend in values, if there is one.

In looking at these three sales and when considering there has been no activity in this size range in the last 3 months, are these sales indicating to you that the market trends are still increasing in this area?

[sdrealtor]

Sorry getting on a plane and dont have time to do enough research. The lack of activity in the last 3 months in this size range tells me that inventory has been very constrained particularly given the fact that sales have been relatively strong in this area. It tells me nothing about the trend. If anything, there could be some pent up demand of frustrated buyers who have been trying to get into a nice 5BR home in a great school district before September. Relo buyers like that tend to have plenty down and a small appraisal gap wouldnt present much of a problem (of course a big gap would).

You bearish philosophy is showing and as an independent appraiser you should be neutral. With an hour or two, I am very confident that I could create a very reasonable case for a 900K value that could be justified without a positive or negative bias.

Sorry but computer access will be very limited for me over the next week as I’ll be on vacation again.

One last thing Bugs. With all honestly, what would you tell me to do or better yet, where would you tell me to go if I tried to justify a price to with a 6.5 month old comp?

[sdrealtor]

Sorry getting on a plane and dont have time to do enough research. The lack of activity in the last 3 months in this size range tells me that inventory has been very constrained particularly given the fact that sales have been relatively strong in this area. It tells me nothing about the trend. If anything, there could be some pent up demand of frustrated buyers who have been trying to get into a nice 5BR home in a great school district before September. Relo buyers like that tend to have plenty down and a small appraisal gap wouldnt present much of a problem (of course a big gap would).

You bearish philosophy is showing and as an independent appraiser you should be neutral. With an hour or two, I am very confident that I could create a very reasonable case for a 900K value that could be justified without a positive or negative bias.

Sorry but computer access will be very limited for me over the next week as I’ll be on vacation again.

One last thing Bugs. With all honestly, what would you tell me to do or better yet, where would you tell me to go if I tried to justify a price to with a 6.5 month old comp?

[Bugs]

A) As an appraiser I NEVER base an appraisal primarily on any one sale. I’m looking for the trend, not the exception; no one sale makes or breaks an appraisal – not ever. By the same token, I don’t limit the number of comps I analyze in a report to only 3 sales unless I have absolutely no other choice – and that never happens when I’m appraising homes.

B) I said that the oldest comp (12/28/2006) happened to be most similar overall except for the pool. I didn’t say I’d weight it that much more heavily than the other two sales. Trust me, If you didn’t like what the oldest sale was saying you REALLY wouldn’t be happy with the results with weighting the most recent sale.

C) I am required to back my opinion up and I am compelled to work with the data at hand. I don’t get to opt out of an assignment just because the data is sparse. I almost never get the data I’d LIKE to get. Nevertheless, a lack of recent or similar doesn’t give me more latitude to insert my personal discretion into an appraisal. The data is what it is regardless of how I “feel” about it.

D) If you’re saying that the lack of activity is due to the lack of supply and that there are more buyers than sellers right now then perhaps that’s so. I’m not interpreting average exposure times of 2+ months as being indicative of a smoking hot market. The same holds true for sales prices that predominantly wind up closing at the bottom of the listing ranges. Reasonable people may have to agree to disagree on that one.

E) If you’re rebutting one of my appraisals, you’re rebutting my selection of comparable data based on similarity and/or proximity. As far as my clients are concerned the only way an agent’s rebuttal would be considered more credible than my appraisal would be if they came up with data that was either more similar or more recent than the data I’m using. The only way that’s going to happen is if I’m incompetent with respect to researching the comparable data. They will not be rebutting one comp; they’ll be rebutting all of them, and that only works if all their comps are more similar than all of my comps.

F) I ALWAYS give the realty agents involved the opportunity to give me the data they think I should consider in an appraisal. In the last 10 years I think I’ve been handed a grand total of a half-dozen relevant sales transactions that I wasn’t already aware of. None of those occurred in assignments involving residential real estate – they were all commercial properties that were not listed in the MLS or on Loopnet and were not reported in COMPS. I honestly cannot recall the last time a residential agent came up with a relevant piece of data of which I wasn’t already aware.

H) The reason I give the agents the opportunity to feed me comps is not because I honestly think they’ll come up with something I didn’t already know, but to prevent them from saying I didn’t give them a chance. It works really well, too. That’s one reason I generally don’t get rebuttals or appeals, and why I never lose when they do appeal.

I) I obviously have a personal opinion about the regional trends, but that’s not the same thing as my professional opinion in any given assignment. I allow the data to speak for itself. Luckily for me, the data speaks quite well by itself.

I’ve signed a lot of appraisals with value conclusions that are, in terms of my personal opinions, very unreasonable. I can do that without a qualm because I recognize that nobody cares what I think on a personal level.

[Bugs]

A) As an appraiser I NEVER base an appraisal primarily on any one sale. I’m looking for the trend, not the exception; no one sale makes or breaks an appraisal – not ever. By the same token, I don’t limit the number of comps I analyze in a report to only 3 sales unless I have absolutely no other choice – and that never happens when I’m appraising homes.

B) I said that the oldest comp (12/28/2006) happened to be most similar overall except for the pool. I didn’t say I’d weight it that much more heavily than the other two sales. Trust me, If you didn’t like what the oldest sale was saying you REALLY wouldn’t be happy with the results with weighting the most recent sale.

C) I am required to back my opinion up and I am compelled to work with the data at hand. I don’t get to opt out of an assignment just because the data is sparse. I almost never get the data I’d LIKE to get. Nevertheless, a lack of recent or similar doesn’t give me more latitude to insert my personal discretion into an appraisal. The data is what it is regardless of how I “feel” about it.

D) If you’re saying that the lack of activity is due to the lack of supply and that there are more buyers than sellers right now then perhaps that’s so. I’m not interpreting average exposure times of 2+ months as being indicative of a smoking hot market. The same holds true for sales prices that predominantly wind up closing at the bottom of the listing ranges. Reasonable people may have to agree to disagree on that one.

E) If you’re rebutting one of my appraisals, you’re rebutting my selection of comparable data based on similarity and/or proximity. As far as my clients are concerned the only way an agent’s rebuttal would be considered more credible than my appraisal would be if they came up with data that was either more similar or more recent than the data I’m using. The only way that’s going to happen is if I’m incompetent with respect to researching the comparable data. They will not be rebutting one comp; they’ll be rebutting all of them, and that only works if all their comps are more similar than all of my comps.

F) I ALWAYS give the realty agents involved the opportunity to give me the data they think I should consider in an appraisal. In the last 10 years I think I’ve been handed a grand total of a half-dozen relevant sales transactions that I wasn’t already aware of. None of those occurred in assignments involving residential real estate – they were all commercial properties that were not listed in the MLS or on Loopnet and were not reported in COMPS. I honestly cannot recall the last time a residential agent came up with a relevant piece of data of which I wasn’t already aware.

H) The reason I give the agents the opportunity to feed me comps is not because I honestly think they’ll come up with something I didn’t already know, but to prevent them from saying I didn’t give them a chance. It works really well, too. That’s one reason I generally don’t get rebuttals or appeals, and why I never lose when they do appeal.

I) I obviously have a personal opinion about the regional trends, but that’s not the same thing as my professional opinion in any given assignment. I allow the data to speak for itself. Luckily for me, the data speaks quite well by itself.

I’ve signed a lot of appraisals with value conclusions that are, in terms of my personal opinions, very unreasonable. I can do that without a qualm because I recognize that nobody cares what I think on a personal level.

[sdrealtor]

Too busy packing to say more than the two most relevant examples of recent pendings I provided sold in 4 days and 11 days not 2+ months.

[sdrealtor]

Too busy packing to say more than the two most relevant examples of recent pendings I provided sold in 4 days and 11 days not 2+ months.

[Bugs]

“Most relevant”? We’ll have to be content to disagree on that one.

The larger one is in no way directly comparable – Not only is it that much larger, but the homes in that entire project are larger all the way around. Remember what I said about avoiding projects with dissimilar units?

The smaller one is newer than our subject or the three in its’ neighborhood, and again, a paired sales analysis from earlier this year indicates that this project has also historically sold for more than ours. Check out the sale on Corte Fresa that sold in 01/2007 (right in the middle of the 3 I mentioned). At $875,000 it sold below its list price, and was STILL 5% higher than the “equivalent” sales I noted from the subject’s neighborhood.

It remains to be seen whether this pending sells within its range, but even if it does sell at its upper end it still indicates back to the same trend indicated by the 3 sales I noted and the 5 or 6 other sales I alluded to. If it sells at the bottom of its range it indicates to a slightly lower value.

I’ll defer to your point on DOM (on the smaller one, anyway), although the CMA indicates average exposure times for all pendings are still in excess of a month. You’d still have to prove your point about selling at the top of those ranges, though.

[Bugs]

“Most relevant”? We’ll have to be content to disagree on that one.

The larger one is in no way directly comparable – Not only is it that much larger, but the homes in that entire project are larger all the way around. Remember what I said about avoiding projects with dissimilar units?

The smaller one is newer than our subject or the three in its’ neighborhood, and again, a paired sales analysis from earlier this year indicates that this project has also historically sold for more than ours. Check out the sale on Corte Fresa that sold in 01/2007 (right in the middle of the 3 I mentioned). At $875,000 it sold below its list price, and was STILL 5% higher than the “equivalent” sales I noted from the subject’s neighborhood.

It remains to be seen whether this pending sells within its range, but even if it does sell at its upper end it still indicates back to the same trend indicated by the 3 sales I noted and the 5 or 6 other sales I alluded to. If it sells at the bottom of its range it indicates to a slightly lower value.

I’ll defer to your point on DOM (on the smaller one, anyway), although the CMA indicates average exposure times for all pendings are still in excess of a month. You’d still have to prove your point about selling at the top of those ranges, though.

[temeculaguy]

Too bad sd had to get on a plane, I was rather enjoying the “Clash of the Titans.” This is how debates should go, argument supported by facts, no insults just the occasional jab and then more facts and debate. Standing ovation from the crowd.

[temeculaguy]

Too bad sd had to get on a plane, I was rather enjoying the “Clash of the Titans.” This is how debates should go, argument supported by facts, no insults just the occasional jab and then more facts and debate. Standing ovation from the crowd.

[Bugs]

Eck. In all honesty, the question wasn’t addressed to me in the first place, and I just stuck my two cents in; so I guess I deserve whatever comes as a result of that.

The one thing I would point out is that my perspective is different than that of a realty agent because I don’t deal with the front end of the transaction – the establishment of the listing price, the marketing, the negotiations, the contract, and all that. I only see the end results, and deal with the end result of other transactions. I usually am looking backward in time for what I can demonstrate the value to be based on events past. By definition an agent is dealing with the prospective buyer and the prospective sale price and they would generally be looking forward.

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